Facebook Inc (FB) Engagement Metrics Rock Solid [REPORT]

J.P.Morgan Equity Research analysts Doug Anmuth, Kaizad Gotla, Bo Nam and Diana R Kluger maintain an Overweight rating for Facebook Inc (NASDAQ:FB) as they examine engagement metrics across the social media landscape in their report dated March 18, 2014.

We reiterate our Overweight rating on Facebook Inc (NASDAQ:FB) as engagement metrics across mobile and desktop remain solid. We believe advertiser demand in the quarter continues to build and comScore data suggests continued strong engagement. In this note we look at February mobile and desktop data for Facebook, which shows Facebook’s share remains at ~18% of overall Internet time and 22% of mobile time – excluding Instagram and Whatsapp. Facebook’s total minutes on both desktop and mobile declined sequentially, which we believe is at least partially attributable to fewer days in the month. We also note that Facebook is reportedly rolling out auto-play video ads in the U.S. in late April or early May. We believe this new format, along with increased ad traction on Instagram, should help bring more brand dollars to Facebook and drive further CPM growth. Facebook remains our favorite idea for 2014 and we reiterate our Overweight rating and $80 PT.

Facebook’s solid February engagement data

Facebook Inc (NASDAQ:FB) showed strong mobile metrics in February as Facebook’s share of mobile minutes (smartphones only, excludes tablets) in the U.S. grew to 22%, up from 21% in January and 20% in December, widening the gap with other services (Instagram, Twitter, Whatsapp, Snapchat) combined which have been more flattish at 5% since July 2013. Facebook’s total share of minutes in the U.S. across both mobile and desktop grew from 14.8% to 17.7% over the past year, but declined slightly from 18.2% in January. Other services combined held flat at 3% from January and we note that Facebook’s U.S. minutes are still ~6x greater than minutes spent on the competitive services noted above. If we were to include Instagram and Whatsapp with Facebook, total Facebook minutes grew 31% Y/Y in February, a modest deceleration from 34% Y/Y in January. This compares to Twitter’s 45% Y/Y growth in February total minutes, down from 65% Y/Y in January.

Shorter month may have impacted some engagement metrics

Facebook Inc (NASDAQ:FB)’s U.S. minutes for both desktop and mobile declined M/M in February, which we think could be attributed to seasonality as January likely benefitted from new mobile device sales and fewer days in February. Mobile minutes per UV also declined sequentially, though desktop was nearly stable. Twitter saw solid UV growth in February, but engagement growth decelerated. Twitter’s U.S. UVs on mobile grew 38% Y/Y in February, a modest deceleration from 40% in January, and on desktop grew 4% Y/Y in February, up from -1% in January. However, Twitter mobile minutes decelerated to 70% Y/Y in February, down from 108% in January while desktop minutes grew 10% Y/Y vs. 9% last month.